Litigating employment cases can be expensive, time-consuming, and disruptive for employers. Fortunately, a litigation tactic known as an “offer of judgment” can lead to an early resolution of the case and reduce the costs.
Obvious as Well as Hidden Costs
Employment cases normally involve the filing of various motions, such as requests for discovery (pretrial fact-finding) and summary judgment (dismissal without a trial). Most wrongful discharge cases, for example, are discovery-intensive, involving interviewing witnesses, gathering reams of documents, conducting extensive e-discovery, and taking depositions. Drafting and arguing the motions add to the defense costs.
In addition, the disruption to an employer’s business during the course of the litigation cannot be overstated. While employees are being interviewed and deposed, they aren’t working. While management employees are gathering documents and searching for e-mails and other electronic documents, which may be in the thousands, they aren’t advancing the employer’s business or otherwise tending to their duties.
Employment cases, especially involving discrimination claims, are often emotional. After all, no one likes to be called “racist,” “sexist,” or “homophobic.” Consequently, they cause employees to be distracted from their work even while they’re trying to perform their duties. For all of the above reasons, employers may want to consider early resolution of the cases as a business decision, even when they’re convinced they did nothing wrong.
Methods of Resolving Cases Early
Settlement agreements. Clearly, the most common method of resolving a case early is to settle it before the parties engage in the expense of discovery and motion practice. In many situations, you can reach a settlement for less money than it would have taken to defend the case. Unless you have an important principle to defend that motivates you to stay the course and spend the money, you should consider an early settlement. The advantages are clear:
- Reduce defense costs;
- Avoid the business disruption;
- Get a complete release of all claims;
- Obtain an enforceable confidentiality agreement from the suing party on the terms;
- Secure an enforceable promise the individual will never again seek employment from your business; and
- Eliminate the risk of a large verdict and lots of adverse publicity.
Offers of judgment. If a settlement can’t be reached, however, a second way to try to get the case resolved early is by making an offer of judgment. At the outset, you need to understand that if the employee accepts the offer, there will be a judgment against you and in favor of the suing party. That is a huge disadvantage for this method of early resolution.
Obviously, most employers probably don’t want a judgment against them on the books (for example, for wrongful discharge). Nonetheless, in the right case with the right facts, the offer of judgment can be a powerful tool to get the matter resolved.
Advantages with Offers of Judgment
In most discrimination cases, if employees prevail, they will be awarded their attorneys’ fees and costs incurred in prosecuting the matter. Often, the attorneys’ fees and costs exceed the award given to the individual by a jury. In fact, the attorneys’ fees can be well into six or even seven figures even though the jury award was substantially less. In those cases, the employer will have to pay not only its attorneys to defend the case but also the employee’s lawyers for prosecuting the matter.
One big advantage to an offer of judgment is it can cap the employee’s attorneys’ fees as of the date the offer is made. Federal Rule of Civil Procedure 68, which covers the offers, reads:
If the judgment that the [employee] finally obtains is not more favorable that the unaccepted offer, the [employee] must pay the costs incurred after the offer was made.
Simply put, the offer-of-judgment rule permits an employer to submit a formal settlement offer to the individual. If he rejects the outreach, proceeds to trial, and doesn’t recover an amount greater than the company’s offer, then he must pay his own attorneys’ fees and postoffer costs after that date. (The employer’s costs may include subpoena, deposition transcript, and expert witness fees.)
The rationale is apparent: An offer of judgment is designed to encourage settlements by creating a significant disincentive for the individual to continue to litigate after receiving a reasonable offer. The rule uses the threat of the burden of the employee’s future attorneys’ fees and the employer’s postoffer costs to promote pretrial settlements.
In theory, the offer of judgment protects an employer that’s willing to settle from the burden of further accrued costs and the prospect of paying a large attorneys’ fees award to the employee. It also punishes the individual who rejects the reasonable offer with the payment of his own attorneys’ fees and the employer’s costs.
Applying the Offer-of-Judgment Rule
Here are three possible scenarios to help you understand how offers of judgment work:
Scenario 1. The employer offers $10,000 in an offer of judgment, and the employee recovers $5,000 at trial. The employer incurred $1,000 in defense costs (not including attorneys’ fees). Because the employee wasn’t awarded $10,000 or more, she won’t recover her attorneys’ fees from the employer and will be required to pay the $1,000 in defense costs.
Scenario 2. Assume the same facts as above, except the jury rules in the employer’s favor and awards nothing to the employee. The offer-of-judgment provision doesn’t apply because the employee didn’t get a judgment in her favor. Nonetheless, the employer could still seek costs under a different rule of civil procedure, but in that event the court has discretion over whether to award them.
Scenario 3. Same facts as Scenario 1 above, but the employee recovers $15,000 at trial. Because she recovered more than the $10,000, the offer-of-judgment provision doesn’t apply, and she doesn’t owe the employer anything.
Even if an offer of judgment isn’t accepted, it can trigger settlement talks because employees, and especially their attorneys, should understand they have a lot to lose in litigation. Of course, you must carefully consider the pros and cons of making an offer of judgment in each case (as well as the amount).
In summary, the offer of judgment is a powerful tool to consider using when you’d like to settle a case early and avoid the tremendous costs and disruptions associated with employment litigation.